Fitch Rates AES Dominicana's Proposed US$160MM Notes Issuance 'B-'

Business Wire, Nov 28, 2005

CHICAGO -- Fitch Ratings has assigned a 'B-' international foreign currency rating to the proposed issuance of US$160 million notes due 2015 to be issued by AES Dominicana Energia Finance, S.A. (AES Dominicana). The Rating Outlook is Stable. The proposed bullet bond issuance will be used to refinance existing debt at two power generation operating companies, Andres B.V. (Andres) and Dominican Power Partners (DPP), and provide new working capital.

The rating assigned to this issuance is based on the combined credit quality of AES Dominicana's two main assets in the Dominican Republic, Andres and DPP. The issuance ultimately will be jointly and severally guaranteed by these operating companies to substantially mitigate structural subordination issues and allow the transaction to perform as direct obligations of these two entities. Initially, the transaction will only be guaranteed by Andres, with the DPP guarantee becoming effective following the filing by AES Corp. of its restated financial statements, expected within the coming weeks.

The rating reflects the high quality of the company's assets, its somewhat diversified portfolio of assets (power generating capacity, liquified natural gas (LNG) terminal, gas pipeline, and power purchase agreements (PPAs)), the competitive advantage in terms of the LNG, and the company's experienced management team, as well as a $23.5 million guarantee from AES Corp. The rating also reflects the company's high dependency on the government for payments, the systemic problems that have characterized the Dominican Republic energy sector, low availability of the power plants due to lack of fuel, and challenges of increasing the collections from end users to provide sufficient cash to the generation companies to meet working capital requirements. It is important to mention that the Dominican government, in place since August 2004, is working to reverse the decline of the power sector. The current administration has recognized the magnitude of the problems and, at the end of 2004, announced a strategy to reach the financial sustainability of the power sector, which was also included in the country's agreement with the IMF.

Andres and DPP have been facing liquidity problems as they have not been receiving payments from their primary offtaker, the distribution company, EDE-Este; EDE-Este has not had sufficient cash flow due to the government's failure to meet its payment obligations because of the macroeconomic crisis of the country and the escalating price of fuel and power prices. Without payment from EDE-Este and DPP, with whom Andres contracts short-term PPAs, Andres has been limited in its ability to purchase LNG as it has to prepay for fuel. As a result, Andres has had lower than originally anticipated availability, forcing both Andres and DPP to buy energy in the spot market to meet their respective PPA obligations. Though Andres suspended principal payments, it has remained current on interest under the existing facility.

The proposed bullet bond issuance will provide Andres and DPP with a more appropriate capital structure and should also result in lower total interest expense going forward. However, long-term refinancing risk remains a concern given the recent volatility of the Dominican economy and energy sector problems. The proposed transaction benefits from a six-month interest reserve account and a $23.5 million guarantee from AES Corp that should ensure that debt service is adequately covered until maturity.

Projected EBITDA-to-interest ratios are acceptable for the rating category, increasing from the mid 2.0 times (x) in 2006 to approximately 4.0x in 2009 range; similarly debt-to-EBITDA should improve as well from the mid 3.0x in 2006 to mid 2.0x in 2009 range, related to the forecasted growth in EBITDA. Projected cash flow from operations relies on maintaining collection of revenues from EDE-Este and is expected to include payment of accumulated unpaid taxes and increased working capital requirements. The ability of EDE-Este to generate positive operating cash and service all of its obligations is largely dependent on its ability to continue to improve collections from end users, primarily government and residential consumers, and diminish line losses. EDE-Este has increased collections and expects further improvements, assuming the government pays its bills on time (in contrast to the previous administration) and continues to support its strategy as reflected in the IMF agreement and as additional improvements are made in the residential sector.

AES Dominicana is an energy group operating in the Dominican Republic, which manages two of AES Corp.'s wholly owned generation assets, Andres and DPP. AES Dominicana, through an AES Corp subsidiary, also has a management agreement to operate EDE-Este, one of the three distribution companies in the country. Andres is a power plant with a 304 MW combined cycle generation facility with duel fuel capability (gas and diesel) but with natural gas supplied through the LNG import facility serving as the primary fuel while DPP is a 236 MW power plant comprising two simple cycle combustion turbines that can burn both natural gas and fuel oil Number 2. Both plants together have PPA contracts with EDE-Este for 260 MW that increase over time, but Andres is currently servicing all contracts given its greater efficiency. Andres LNG terminal includes a large tanker berth and jetty, an LNG refueling pier, and a one million barrel (160,000 cubic meters, m3) LNG storage tank, as well as regasification and handling facilities for both LNG and diesel.